History’s Greatest Monster

I’ve been reading some Jimmy Carter material lately, and from the perspective of someone who didn’t live through the 1970s personally there’s something really remarkable about the extent to which history has let off the hook the man with the primary job responsibility of not letting inflation get out of control, to wit Arthur Burns.

Burns, a veteran Republican economic policymaker was exactly the sort of guy you’d think would be very concerned with inflation. And yet across his two terms as Fed chair, he consistently failed to act to stop it from spiraling out of control. Both at the time and in retrospect, he argued that his own failure to act was somehow the fault of congressional Democrats who would have hypothetically responded to hypothetical disinflation with hypothetical action to remove him from office at which point his hypothetical successor would bring back inflation. We’ll obviously never be able to tell if that’s true or not, but we do know that the actual action taken once a Democrat (to wit, Carter) was able to replace him was to replace him with Paul Volcker who took decisive disinflationary action.

I bring this up not so much to condemn a dead guy, but simply because it highlights a number of today’s problems. One is that both historically and currently there’s a tendency among people who like to write about politics to underrate the importance of monetary issues—FOMC deliberations lack the drama of presidential campaigns or congressional debates, but their impact can be decisive. The other is that while the country seems to have learned the lesson “inflation can be really bad” from the 1970s, the real lesson seems to me to be something more like “monetary policy can go oddly awry even when the guy in charge gives every appearance of being well-qualified.”